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Convergence patterns in the world economy: exploring the nonlinearity hypothesis

  • Panagiotis Artelaris
  • Paschalis A. Arvanitidis
  • George Petrakos

Purpose – The purpose of this paper is to investigate convergence or divergence trends at global scale. Design/methodology/approach – The paper questions the methodology and findings of the conventional convergence literature using linear OLS models. It introduces polynomial (quadratic) weighted least square (WLS) regression analysis to explore whether a number of economic performance indicators follow a non-linear pattern of change. Findings – The results indicate the formation of two groups in the world: a convergence one, including countries with low to medium-high development levels, and a divergence one including countries with medium-high to very high development levels. Research limitations/implications – Data availability after 1990 (for the composite indicators). Practical implications – The findings shed light on important issues, such as the decrease of economic disparities between countries, the prospects for global economic convergence, and the development of a more equal world. Apart from obvious policy implication such findings are also of theoretical significance, providing a basis to check (indirectly) the validity of alternative growth theories. Originality/value – This is the first paper (to the authors' knowledge) that explores world convergence/divergence employing quadratic WLS regression analysis with a number of economic indicators. WLS regressions enable the removal of the impact of country size on results, whereas non-linear modelling allows the possibility of multiple equilibria and different development trajectories to be taken into account. Finally, the employment of various economic-performance indicators (simple and composite) works as a cross-check of validity for the results provided.

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Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 38 (2011)
Issue (Month): 3 (July)
Pages: 236-252

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Handle: RePEc:eme:jespps:v:38:y:2011:i:3:p:236-252
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